One eye open

Keep oil & gas production transparent

In the midst of Lebanon’s first offshore oil and gas licensing round, the Lebanese Oil and Gas Initiative (LOGI), an independent NGO aiming to develop a network of Lebanese oil and gas experts, commissioned a study about the 52 companies that had prequalified to bid. This research allowed LOGI to evaluate the companies based on six criteria covering two main areas: corruption track records and anti-corruption policies, and environmental track records—critertia not assessed by the government.

The licensing round ended in October, and a consortium made up of three companies—France’s Total (the operator), Italy’s Eni, and Russia’s Novatek—was the only bidder, submitting two separate offers (Block 4 and Block 9). The Council of Ministers awarded the bids in December and tasked the energy minister with signing contracts by the end of January. In this one-bidder scenario, it is crucial to revisit the findings of our report, with regard to these three companies. We found that none have a completely clean record.

The report found that while Total discloses its beneficial owners—the entities or individuals that ultimately own the company—there are still transparency issues that the company must address. Our research found that Total was involved in a number of bribery incidents, such as one in Iran in 2013 where the company admitted guilt in return for a deferred prosecution agreement with the US Department of Justice for paying third-party bribes for work. Total is also listed in the TRACE corruption database as engaged in anti-bribery lawsuits. On the environment, Total were fined after failings led to a gas leak in one of its plugged wells in the North Sea.

Eni, for its part, has a publicly available anti-corruption policy, yet in 2010, the US Securities and Exchange Commission brought corruption charges against the company related to a bribery scheme in Nigeria involving construction contracts. It also hasother ongoing corruption lawsuits according to TRACE.

Novatek, a Russian firm, does not disclose its beneficial owners. But a review of available literature revealed that one is Gennady Timchenko, a Russian billionaire and member of Putin’s inner circle. For a country such as Lebanon, where foreign political players have substantial influence on all internal political dynamics, it is critical to know whether politically exposed people are associated with international oil companies working in Lebanon.

Based on these findings, LOGI proposes that Lebanese regulatory authorities publish the signed EPA contracts, establish a monitoring mechanism for negotiations between the government and the companies that includes a civil-society watchdog, and publish the outcomes of the negotiations to select a final winner.

In addition, LOGI strongly recommends that the Extractive Industry Transparency Initiative, a tool to facilitate the disclosure of information, be implemented as soon as possible, and that the draft law presented by MP Joseph Maalouf entitled “Strengthening Transparency in the Oil and Gas Sector in Lebanon” be passed. The main aim of the due diligence report was to push the Lebanese government to adopt criteria that LOGI included in its evaluation of companies applying to prequalify for bidding in subsequent licensing rounds, both offshore and onshore.

LOGI also recommends that Novatek’s beneficial owners—both actual and economic beneficiaries—is published by the government.

Further, LOGI recommends that the current Strategic Environmental Assessment, a policy prepared in 2012, be updated as soon as possible so that newly available data can be used as a baseline for future Environmental Impact Assessments. These assessments should be mandatory during the exploration phase because critical environmental planning, as well as health and safety measures, need to be put in place prior to the start of any exploration activity.

The oil and gas industry worldwide has been, and will continue to be, among the top industries associated with corruption, conflicts, and increases in poverty and unemployment rates. Managing these resources, from awarding rights to sustainable use of revenues, in a transparent and accountable manner will render prosperity to its owners, the Lebanese people. For Lebanon to ensure good governance at the early stages of awarding licenses it must adopt stricter criteria for the prequalification of companies, and better hold contractees to account.